May 14, 2007

Can Technology Kill the NAR?

The NAR is the National Association of Realtors. They’re the main lobbying interest for pavement-pounding brick-and-mortar real estate agents. Of course, this is problematic for web-based real estate outfits like Redfin, because the NAR has the required influence to get legislation passed that can make life as a web-based real estate sales organization difficult, if not impossible.

NAR, Technology, and Legislation

The question is, at what point is the NAR going to step on its own toes? Does the NAR really believe that technology will play no part in the future of real estate? Well, of course not! In fact, the NAR is the keeper of the Multiple Listing System (MLS), which (when it became available) was a major technological advancement that greatly aided real estate agents in sharing data with other realtors. It made seller agents more productive because it provided a means of sharing new listings with an audience that basically encompassed the entire realty world. Since seller agents and buyer agents split commissions, it was now much easier to make your entire living based solely on getting listings. It made buyer agents more productive by enabling them to search listings on behalf of interested buyers, and being able to be kept up-to-date on new listings.

There’s also the realtor.com website, which is an interface to the MLS and (according to the site itself) “the official site of the National Association of Realtors”. So if it’s not about doing without technology, then it must be about ownership of the data.

Of course! After all, the NAR is really only able to justify 6% commissions if it is the sole keeper of the *inventory* of things for sale, *and* it can influence legislation as it applies to how real estate transactions take place. For example, they’ve had some success in making it illegal for brokers to offer rebates. This makes things very hard for Redfin, specifically, because a part of their model refunds a part (actually, most) of the commission it splits with a third party agent back to their client.

What if there were no realtors? (aka Real Estate as Travel industry)

Of course, the NAR can only (currently) control legislation regarding real estate transactions that involve registered NAR realtors, so going forward, if there’s a compelling service that becomes a de facto standard marketplace for real estate (or at least, some subset of “real estate” proper), it would seem that the NAR would have two choices: find a way to justify their existence by representing a larger portion of those involved in the transactions (like the buyers and sellers themselves), or find a way to pass legislation that *requires* that realtors be involved in every transaction. Sounds impossible, but we’ve seen some pretty wacky legislation in the past, haven’t we?

I don’t really think they’ll pass the legislation needed to guarantee work for pavement-pounding realtors. I also don’t think the NAR is a breeding ground for the kind of progressive, independent thought required to take a new direction. In all likelihood, what you’re looking at when you look at the NAR and the real estate industry in general is somewhat similar to the travel industry in 1998. It’s an organization and an industry that doesn’t even know what’s about to happen. It’s an industry that believes, like the travel industry did, that “real estate is all local”. It’s an industry that, just like the travel industry, keeps its technology largely to itself. It’s an industry, just like travel, that used technology to empower agents, not customers. It’s an industry, like travel, that has largely failed to recognize the emergence of technology and the web as tools that (unbenownst to them) didn’t just make advancements *possible*, it *necessitated* a change in how they interfaced with customers, suppliers, and each other.

The young wippersnappers, with their new-fangled whirligigs, are going to change the real estate market, both for their own benefit, and the benefit of the customers.

The Customer Service Myth

And if you’re a realtor, you can save all the happy horse crap about customer service. I’ve heard it all before, believe me. I’ve purchased a couple of houses myself, and grew up in the business besides. I’ve had lots of friends and family who have worked in various parts of the industry, and while I understand that customer service is *supposed* to be the lifeblood of the industry, the reality is quite different. Customer service, and all of the things that an agent does for either side of the transaction, are largely “feelgood” services that are, at best, smoke and mirrors – and that assumes the realtor’s intent is good. In many cases, it’s just an outright scam.

How many realtors are “certified staging experts”? Ever look into all of those accreditations and certifications that started to magically appear something like 10 years ago? They’re all invented, and issued, by the very companies whose agents hold them. No conflict of interest there, eh?

And what about research? When’s the last time you went to a showing for a house only to find that it failed to meet most if not all of the criteria you set out when you first spoke to your realtor? Realtors *rarely* pre-screen houses by actually *going* to the houses anymore.

On the seller side, how do you think the realtor comes up with a price to sell your house at? They come to you with “comps”, which a lot of times amounts to houses that are similar to yours only in geographic location. In many markets, a couple of blocks difference is significant enough to render them useless. Real estate agents are not real estate appraisers, are not trained in the various appraisal methods practiced by appraisers. What’s more, they don’t really care about any deeper notion of “value”. What they really want to do, more times than not, is “price to move”. They want to price your house so that it looks really attractive compared to the rest of the market, so it will sell more quickly, so they can collect their commission more quickly.

“But doesn’t that mean a smaller payday for them?” Well, if we’re talking about the transaction in a vacuum, yeah, it does. But if a realtor can sell 8 houses per month by pricing them below the market, they’ll make far more money than if they sold 4 houses priced at or slightly above the market.

You can actually do your own comps if you take a little time to understand those things that are relevant to pricing your house and comparing it to another house. It’s not rocket science, but there are some quirks that you need to know about. Get to know those, and the rest of the research can be done using online tools, including realtor.com.

Going it alone

In the end, there are lots of online tools to do just about anything you want. You can research a community, research a school system, research the housing market, even answer questions like “are there any registered sex offenders in this area?” all online. Just about 100% of this information can be had for free.

Online virtual tours are commonplace. You can now see satellite images of the house, and the entire neighborhood, where you’re interested in buying. All of the tools to research any aspect of the house and neighborhood are available. The only missing piece is an organized way to bring the buyer and seller together to settle on terms and complete the transaction.

Well, it *was* missing. Redfin and other online tools like it are working to close the gap. Check out the story on TechCrunch, which links to a great 60 Minutes piece about all of this.

By the way – I don’t think realtors are going to disappear. Just like travel agents, there will always be some 80-year-olds who haven’t figured out the internet and need some local presence to get things done, but that kinda ties the lifespan of these places to the lifespan of… really old people.